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Myths and Realities of Pandemic Risks for Insurance Companies

In 2013, Prof. Dr. Michel Dacorogna held an important international research conference on pandemic risks for the insurance sector and published under his former employer Scor a report summarizing the knowledge on the subject. The report deals with the nature of the risks of pandemics today, what the characteristics of such a pandemic are and how to risk model it.

World map showing examples of appearances or re-appearances of infectious diseases in the world. Publication from Prof. Dr. Michel Dacorogna.
Examples of appearances or re-appearances of infectious diseases. Source:

Insurers and even more reinsurers are confronted to risks that they cannot diversify away in their portfolios because they affect a large number of insurance policies at the same time. They are usually called catastrophic risks. Among them, the sudden eruption of a pandemics is one of the largest risks that confronts life insurance and in a lesser extend also P&C insurance. It is also a risk difficult to assess due to the lack of sufficiently representative data. Indeed, the last important pandemics dates back to 1918, with the Spanish Flue. It killed millions of people at the end of the First World War. Some estimates give numbers higher than the number of people killed during the entire war. Since then, the World has known many pandemics, among the latest the SARS (Severe Acute Respiratory Syndrom) or the H1N1 have had important media exposure, without affecting much the results of insurers or reinsurers. For all that, should we consider that this risk has vanished? Without going back to the pest plague of the XIVth century, history has shown us that pandemics is a recurring phenomenon that insurers cannot ignore. All the more since the advent of risk-based regulation like Solvency II, this risk plays a central role for the risk of life insurance in particular in the standard formula of Solvency II.

Read the full report from Prof. Dr. Michel Dacorogna here (in French).

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